Texas Lawmaker Scolds Insurance Industry over Coastal Coverage

A state senator in Texas is taking the insurance industry to task for what he perceives as its disinterest in coming up with new approaches to solving coastal windstorm insurance issues.

In a Senate committee meeting on March 12, Sen. John Carona, a Republican from Dallas, scolded property/casualty insurance industry representatives saying, “as somebody who entered this body [Legislature] 23 years ago about as pro insurance as you could be, I’m darned tired of the insurance industry in recent years. Because the industry is all about take, take, take and not enough about sitting here and making a contribution back.”

Sen. Carona made that comment during a Business and Commerce committee meeting in which he laid out three bills that he said take a comprehensive, statewide approach to developing a model for ensuring reliable and readily available insurance for properties located in catastrophe-prone areas, like the Texas coast.

Sen. Carona said Senate Bills 18, 19 and 311 would: create a new statewide property insurance program that includes an assigned risk plan to serve as the state’s insurer of last resort; create a mitigation grant program; and establish a registration program for roofing contractors, respectively.

While most participants spoke favorably about the mitigation grant program, small roofing contractors opposed the registration bill, which they say imposes restrictions that would make it more difficult for them to compete for business.

The most contentious bill, SB 18, is broad-ranging and would create a statewide assigned risk program for at risk properties, as well as a clearing house for facilitating the transfer of former policyholders with the current insurers of last resort, the Texas Windstorm Insurance Association and the FAIR plan.

Insurance industry lobbyists who spoke against the idea of the assigned risk plan met with strong resistance from Sen. Carona, who said, “I am not going to look kindly on the insurance industry on this issue. I don’t think the insurance industry is dealing in good faith here. I think they have an agenda and the agenda is to drag their feet so they don’t have to deal with this problem. And they’d rather it be on the back of Texans, they’d rather we deal with it on our own and so be it if we end up with a program that’s ultimately insolvent.”

Sen. Carona said SB 18 “aims to bring the voluntary insurance market back to the Texas coast while at the same time providing the safety net for policyholders. … The statewide approach eliminates the FAIR plan altogether and removes the residential property coverage from TWIA between 2015 and 2016.”

Industry Objections

Beaman Floyd, speaking for the Texas Coalition For Affordable Insurance Solutions, a group of large property insurers, including State Farm and Allstate, told the committee the insurers that he represents “can’t find a way that we are comfortable with an assigned risk program.”

Instead of doing away with TWIA, which by all accounts is vastly underfunded, Floyd said TCAIS would like to see the legislature “create a strong spine of primary funding” for TWIA or its successor. It may not be “TWIA in its current structure but it would be some structure that would issue the paper, hold the risk and see to the adjusting,” Floyd said.

Carona countered that in his view, the insurance industry would like to keep a TWIA-like entity in place because “the industry position is, they just don’t want to touch these risks.” He dismissed Floyd’s argument that the industry would like to voluntarily take over certain risks along the coast, saying private insurers have that ability now “and you’re not volunteering.”

Floyd suggested that the industry could propose a plan to whittle down TWIA into an entity that is “a lot smaller and a lot more restrictive than it is right now.”

“Where is the proposal to do that? It’s not like this issue just cropped up this week. Where is your insurance proposal?” Sen. Corona asked.

“I think you all don’t realize the degree to which you are pushing some of us who have been the industry’s friends for a long time. It’s increasingly difficult to continue defending the industry. One of the ways you all can prove your willingness to be a bit adaptable is to try to help us come to a solution for this,” Carona said.

Fred Bosse, representing the American Insurance Association (AIA), told the committee that while his members are opposed to an assigned risk plan, the idea for a clearinghouse came from an AIA member and that many in the association would likely be interested in participating in one.

There are, however, certain elements of SB 18 about which AIA members are concerned, Bosse said. “First of all there’s the unhealthy concentration of risk. … Whatever might be conceived of in the assigned risk plan, the great majority is going to be coming in a concentrated area of the Texas coast. That in itself is a danger,” he said.

The companies also “worry about the capital that they need to support the writings in the assigned risk program,” Bosse said.

Suggesting that with the assigned risk plan, private insurance companies would potentially be faced with writing $80 or $90 billion in properties that come out of the FAIR plan and TWIA, Bosse said carriers would “need about $30 billion to support that level of writing. The question that they pose is, where do we come up with that $30 billion to support that additional load of risk that we’re not currently required to write?”

Lastly, Bosse said, AIA members are concerned about the direct costs to insurers associated with SB 18. One is the cost of getting their companies set up to write in the assigned risk plan, such as restructuring in such a way as “to be able to look at risks that are coming out of the clearinghouse to see if you want to write them voluntarily.” Additionally, he said, under the bill, much of cost of setting up “the administrator of the assigned risk plan is put on the insurance industry.”

Bosse said there are areas of the coast that the private market is just not going to want to write. Therefore, AIA believes there has to be some sort of a state-backed mechanism to handle those properties, even if it is a much smaller entity than TWIA is currently.

Joe Woods, testifying on behalf of the Property Casualty Insurers Association of America (PCI), said “the clearinghouse idea is an intriguing idea,” and would be a good way to move the approximately 20 percent of policies in TWIA that are being written at a near market rate into private insurers.

However, Woods said PCI members are opposed to assigned risk plan and instead would like to see a sustainable financial structure developed for TWIA. “I think there are ways to work that to make TWIA financially sound,” Woods said.

Woods said that the fundamental problem with TWIA is that its “funding tower” is essentially missing its foundation and first floor, the Class 1 bonds that the bond market has made it clear cannot be sold.

PCI also opposes provisions in the bill that would shift up to $2 billion per year in TWIA losses to private insurers, and eventually consumers through policy assessments, and the state General Revenue Fund, through premium tax credits.

A Mutual Organization

Jay Thompson, representing the Association of Fire and Casualty Companies of Texas, testified that members of AFACT, which are mostly smaller insurers writing only in Texas, oppose an assigned risk plan, as well. He said such a plan would be particularly hard on some members that write in underserved areas, as well as those that write low value dwellings.

AFACT, like the other insurance trade associations, would rather see a restructuring of TWIA and its funding mechanism, Thompson said.

“I’ve thrown out the idea of reorganizing TWIA and the FAIR plan together as some type of mutual company,” Thompson said. “Where it can operate statewide and also be an insurer of last resort.”

Pointing out that Thompson’s written testimony provided to committee members included the phrase ,“there are serious concerns about a hasty rush,” Sen. Carona said, “There is no hasty rush. This problem has been out there for years and years. The industry is going to continue to drag its feet and this committee, if it does nothing else is going to find a way to address this issue. … I may face a fight all the way but we’re going to do something here. And I hope that eventually … the members at large get the courage to basically tell the insurance companies, you’ve either got to change your ways or step aside.”

Thompson said he had provided the governor’s office with a written proposal for reorganizing TWIA into a pre-funded mutual company. Participating companies would prepay funding amounts and they would issue a policy in TWIA’s name, similar to the national flood insurance program.

Sen. Carona said he was unaware of Thompson’s proposal and would be interested in reading it.

The senator made it clear that that in his view, “insurance should be about the private market. I just don’t see where any state has come out well whenever they’ve tried to deal with insurance, particularly the wind issue.”